Tuesday, February 2, 2010

Britain Launches Comprehensive System of Feed-in Rates

In a truly groundbreaking move for the English-speaking world, Britain's Department of Energy & Climate Change (DECC) has released a full suite of renewable energy tariffs that go into effect in April.

And Britain will fully index the tariffs with inflation. This often overlooked aspect of the British program will significantly boost earnings by protecting investors from the ravages of inflation.

Britain will become the first country in the world to offer a comprehensive system of tariffs for renewable heat, including tariffs for solar domestic hot water and ground-source heat pumps among others.

In another first, Britain will also offer a tariff for biogas injected into natural gas pipelines.

And Britain will fully index the tariffs with inflation. This often overlooked aspect of the British program will significantly boost earnings by protecting investors from the ravages of inflation.

Britain has gone farther, faster than almost any other jurisdiction worldwide in moving to feed-in tariffs. From open ideological hostility to their new-found political embrace, the turn about has been striking and could offer the prospect for similarly rapid movement in North America.

Though Ontario had implemented a modest feed-in tariff program in 2006, the Canadian province moved swiftly when it decided to revamp the program. Ontario implemented its system of Advanced Renewable Tariffs, the most comprehensive in North America, in less than eight months, including public consultations and tariff price-setting.

However, critics charge that Britain's DECC has set its sights too low. The limitation of feed-in tariffs to a micro-generation "ghetto" remains troubling to many renewable energy advocates. Wind, solar PV, and hydro projects are limited to no more than 5 MW, or roughly two commercial wind turbines. Further, the tariff tranche for wind projects from 1.5 to 5 MW is so low that only the windiest sites in Britain will be suitable, raising concerns about more siting conflicts.

In a press release, Friends of the Earth's Dave Timms says, "The introduction of cash incentives to boost small scale green electricity generation is welcome, however, ministers have been far too timid with a policy that could make a significant contribution to cutting emissions and boosting energy security.

"Installing renewable technologies will now be a good investment for many homes, but farmers, businesses, communities and others will get little or no extra incentive to invest in clean electricity," Timms argues.

At the same time, the World Future Council's Miguel Mendonça says, "The UK is taking its first steps towards a policy environment which encourages citizens, farmers and others to become an active part of the climate change solution - and make a solid investment while doing so."

Renewable Heat Tariffs

Potentially far more significant than the wind and solar tariffs, all of which have been done many times before, Britain's tariffs for renewable heat could be a game changer. There has been widespread intellectual reluctance to tackle tariffs for renewable heat. It's as though policy makers don't understand that heat, in kilowatt-hours or any other units, is just as measurable as electricity. Then too, hot water from a solar panel is not quite as "sexy" as a spinning wind turbine or a gleaming solar-electric system.

But Britain finds itself in an unenviable position. Heat is needed and the British Isles are at the end of the continent's natural gas pipelines. Coupled with the country's disastrous experiment with so-called market deregulation, Britain is vulnerable to gas shortages during the heating season.

In 2007 the Ontario Sustainable Energy Association (OSEA) recommended in its report Renewables without Limits that the Ontario Power Authority institute solar thermal tariffs of $0.20 CAD/kWh for residential solar thermal and $0.10 CAD/kWh for commercial solar thermal installations. OSEA's recommendation was not included in the recently launched Ontario feed-in tariff program. OSEA also recommended that OPA set a tariff for biogas pipeline injection. This feature was also not included in the new Ontario program.

Where Ontario hesitated, Britain acted. This one policy tweak could be the gem hidden in the British program. "This is a significant step forward that policymakers in northern climates should definitely be paying attention to" says Toby Couture, one of North America's foremost authorities on feed-in tariffs.

Wind Tariffs

While the wind tariffs were designed to benefit British small wind turbine manufacturers, the tariffs for larger projects is sufficiently attractive to interest manufacturers of mid-size machines such as Enercon. The German manufacturer is one of the few major players that still supply a full line of products in the mid-size class.

Enercon offers both a 330 kW model, and two 800 kW models. These turbines would qualify for the 9.4 pence/kWh ($0.15 USD/kWh, $0.16 CAD/kWh) tariff class of up to 1.5 MW.

Solar PV Tariffs

Britain's less than 4 kW solar PV tranche offers a better tariff than that found in Germany, the world's solar PV powerhouse. Larger systems don't fare as well as in Germany but are protected from inflation.

Not known for its sunny weather, Britain could now serve as model of solar development for its former colonies, such as Nova Scotia, with similar climates.

Tariffs Indexed with Inflation

Unlike in Germany, British tariffs will increase with inflation. The tariffs were calculated to offer between 5-8% return on initial investment, says the Department of Energy & Climate Change. Because the tariffs are indexed to inflation, the nominal rate of return could be as much as 7-10%. Indexation is calculated by the percentage increase or decrease in the Retail Price Index (RPI) over the previous 12 months.

Residential Income Tax Exempt

Significantly, income from residential renewables, such as rooftop solar PV, will not be taxed as income. This provision could prove a boon to the retail solar PV industry, practically non-existent in Britain.

Once the laughing stock of the world's renewable energy community, Britain's new feed-in tariffs could finally put it back on the world stage alongside up and coming centers of renewable energy development such as Ontario and China.